THIS story is going to challenge your understanding of basic logic. I will do my best to explain it slowly and clearly, but you might want to get yourself that second cup of coffee and mute your phone before proceeding.
Manila Water, one of two water concessionaires for the greater Metro Manila area, has just filed another notice of arbitration against the government with the Permanent Court of Arbitration in Singapore.
This time it is seeking compensation for an estimated P79 billion in operating losses it will incur for the years 2015 through 2037 as a result of being ordered by the Metropolitan Waterworks and Sewerage System (MWSS) in September 2013 to reduce its water rates.
At that time, Manila Water, along with its counterpart, Maynilad, filed an application for a “rate rebasing” (i.e., increase—we will experience the heat death of the universe before “rate rebasing” ever means a reduction in utility tariff rates) with the MWSS, asking for a P5.83 per cubic meter increase in its basic rate; Maynilad’s request was for P8.58 per cubic meter. Instead of doing what is expected of a Philippine utility regulator (I’m looking at you, ERC) and rubber-stamping any obnoxious rate hike petition that crosses their desks, MWSS screwed up its courage and told both its concessionaires to stuff their rate increase requests, ordering them to stop adding their corporate income taxes to their rate calculations and further ordering Manila Water to reduce its rates by P7.24 per cubic meter, and Maynilad to cut its rates by P1.46 per cubic meter.
Manila Water immediately ran to the Arbitration Court in Singapore to try to have MWSS’ decision overturned. Maynilad followed suit a couple of months later, after taking some time to thoroughly prepare its case, which at least partly explains why the decision of Arbitration Court favored Maynilad and was issued sooner than the unfavorable ruling for Manila Water.
In Maynilad’s case, the arbitration panel granted a P3.06 per cubic meter rate increase, and more or less skirted the issue of charging the company’s income taxes to customers.
The increase was just about the equivalent of the amount added by taxes anyway, so Maynilad was generally satisfied by the outcome, although they filed another case at the Arbitration Court against the government when a request for reimbursement for the difference between the MWSS-mandated rate and the new rate for the period during which the case was under arbitration (a total of about P4.9 billion, according to Maynilad), was ignored.
In Manila Water’s case the ruling from the arbiters rather pointedly upheld the exclusion of income taxes, and ordered a P2.77 per cubic meter rate cut—still a win in a sense, as this was much less of a cut than what had been ordered by MWSS, but otherwise not at all what Manila Water was hoping for.
The proper response to all this, Manila Water has decided, is to file another arbitration claim against the government, reasoning that since it has not been allowed to “rebase” its basic rate, its rate of return for the next 22 years will be diminished to below the rate guaranteed in its concession agreement, costing the company P79 billion.
Although consumers may find Maynilad’s rates a little onerous and their service generally reflective of the poor quality that characterizes all public utilities here in the uncompetitive Philippines, their handling of their dispute with the government makes sense and they are probably correct, at least within the concessionary model employed here; that the model is fundamentally a bad idea is another matter. Manila Water’s attempt to pillage public coffers, on the other hand, is either a manifestation of a completely retarded concept of management (Maybe they need to test that water they provide; there may be something in it that causes brain damage.), or an incredibly brazen attempt at institutional extortion.
The regulator, a party to the concession agreement who, therefore, presumably has full knowledge and understanding of all its terms, including the specified rate of return, decreed that Manila Water is not entitled to its requested rate increase, and therefore, not entitled to an extra P79 billion in revenue over the next 22 years. The Arbitration Court, the disinterested third-party dispute resolution mechanism provided for in the concession agreement, essentially upheld the decision, although it did offer Manila Water some slight relief. Yet, Manila Water would have everyone believe that simply making a rate hike request automatically makes the revenue that request would generate demandable, regardless of any contrary result of contractual provisions. There is no stretch of even the most imaginative reasoning that could ever make that position rise above a level that could even be charitably described as pants-on-head crazy.
NO is only a two-letter word, which part of it is Manila Water having trouble understanding?